This piece was originally published by RHR International in an e-book, Building and Sustaining Great Boards.
Leadership in the boardroom and the C-suite increasingly requires a balance of wisdom and mettle.
This is particularly true in the age of activist investors, social media and proxy advisory firms. Leaders need wisdom to ask the right questions, recognize possible scenarios and risks, and understand the dynamics in play. These leaders must also summon the mettle to dramatically increase the pace of decisions to fit a window of opportunity or to intentionally forge a strategic path that involves either a battle or a setback in near-term business performance. Leaders, now more than ever, need to pick the good fight. Although there are multiple options to choose from, here are a few examples.
Proxy advisory firms tend to incorporate external measures for good board governance that are based on typical business conditions. These formulas do not necessarily have the same utility for extreme or unique situations. However, flags will still be thrown when results are outside the guidelines. For example, determining the right executive compensation for a company in a longer-term turnaround can be challenging because in the near term, the business performance may not justify the level of compensation. However, how do you keep key executives who did not create the situation they are striving to fix? There is no easy win here. The only path is to make decisions based on a sound business plan and be prepared to defend them — versus looking for an option that will not be challenged. Otherwise, you risk explaining to stakeholders one year later why you created the situation where you lost your key senior executive team members to better options.
Highly talented but severely flawed executives can present another conundrum. Unless it involves illegal activities, it is tempting for organizations without a strong commitment to a set of values to downplay the severity of the executive’s actions. Senior executives may view each event in isolation (instead of acknowledging a trend) or delay acting when faced with bad behavior by an otherwise high-performing individual, as the negative impact on revenues or profits can be significant. Bad behavior becomes even more difficult for leaders to address when there are long term, loyal relationships involved. However, today’s power of information flow is too great to keep the incidents under the radar forever. Even if one chooses to treat each event in isolation, others are not likely to do that and the unintentional story that develops can prove damaging to the leaders — and potentially to the organization.
Unforeseen developments within an industry can quickly create the need for difficult, rapid business decisions to adjust to the new reality. Members of the C-suite tend to come to this realization at different times and it is not always the CEO who first recognizes the implications. This can lead to a critical disconnect between the CEO and members of their team regarding key strategic choices and the business implications. Although unresolved strategic misalignment between a leader and their boss generally predicts a shortened tenure, senior executives owe it to their CEO and the organization to be persistent and articulate in highlighting the implications of the current path and the consequences of either not making course corrections or delaying the response for too long.
Things to consider that leverage both wisdom and mettle:
- The need to buy time or find the right moment. This is a realistic consideration, but it should be viewed with a clear eye regarding the costs of delay. If this is the go-to response, the odds are that the appeal stems from fear not wisdom. Windows of opportunity tend to close, and storms may increase in substance.
- Action is better than no action. Most decisions can be modified based on further data, and many will need minor tweaks instead of major overhauls. However, inaction reinforces stasis and second guessing. With no forward movement, the organization can find itself left behind.
- Ongoing avoidance erodes options. Battles fought early are sometimes easier to win or weather than those left too long. Although the early battle will have risks, it is easier to proactively take on a problem than it is to clean up the mess created by unintended consequences.
- Create a compelling message. In this age of social media, it is important to get ahead of messaging and to create a plan for proactively telling your story and dealing with negative press (both internal and external).
The worthy fights are those required for the success and sustainability of the business, even if they are painful in the short term.
Deborah Rubin is Senior Partner, Practice Leader Co-Head, Board & CEO Services for RHR International.